Maintenance Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about maintenance bonds.  If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

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What Are Maintenance Bonds?

A common concern among construction project owners is that a defect will be discovered after the project has been completed and the contractor has received the final payment for the job. That could mean that the project owner would end up paying out of pocket to correct the problem—but not if the contractor has furnished a maintenance bond.  A maintenance bond protects the project owner for a certain length of time after the completion of the project unless the defect is unrelated to the contractor’s work, such as a design flaw.

Who Needs Them?

Before awarding a contract, any project owner can require the chosen contractor to provide a maintenance surety bond, often along with performance and payment bonds. They’re most commonly required for construction projects funded by taxpayer dollars.

How Do They Work?

A surety bond agreement is a legally binding contract among three parties known as the bond’s “obligee,” “principal,” and “surety.” In the case of a maintenance bond:

  • The project owner requiring and protected by the bond is the obligee,
  • The contractor required to purchase the bond and pay any valid claim is the principal, and
  • The company guaranteeing the bond is the surety.

If it is determined before the end of the coverage period that the project fails to meet state or local building codes or the construction standards specified in the contract and the failure is attributed to the principal, the obligee can file a claim against the maintenance bond. The surety will investigate and ascertain whether the claim is valid and needs to be paid.

Although the legal obligation to pay the claim belongs entirely to the principal, the surety has guaranteed payment and therefore will pay the claim initially and then be reimbursed by the principal. If the principal does not repay the surety as required, the surety can take legal action to recover the claim amount, plus court costs and legal fees.

What Happens if a Claim is Filed?

As the bond’s guarantor, the surety will pay that claim initially, but it’s the principal who is legally obligated to pay it. Essentially, in paying the claim, the surety is extending credit to the principal, thus creating a debt that the principal must repay or face legal action by the surety to recover the claim amount plus any court costs or attorney’s fees.

What Do They Cost?

The premium for a maintenance bond is the product of two factors: the required bond amount, which is set by the obligee, and the premium rate, which is assigned by the surety. The surety is primarily concerned about the risk that the principal won’t repay the debt created by paying the claim on the principal’s behalf. Consequently, the main consideration in assigning a premium rate is the principal’s creditworthiness, as measured by their personal credit score.

A high credit score means that the principal has a history of responsible credit use and on-time payment of debts, suggesting that the risk to the surety is low, which results in a low premium rate, generally in the range of 1% to 3%. Conversely, a low credit score means a higher risk level and warrants a higher premium rate, potentially in the 10% to 15% range.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn about maintenance bonds and request an online quote. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

CONTACT US FOR A

FREE MAINTENANCE BOND QUOTE

What Are Maintenance Bonds?

A common concern among construction project owners is that a defect will be discovered after the project has been completed and the contractor has received the final payment for the job. That could mean that the project owner would end up paying out of pocket to correct the problem—but not if the contractor has furnished a maintenance bond.  A maintenance bond protects the project owner for a certain length of time after the completion of the project unless the defect is unrelated to the contractor’s work, such as a design flaw.

Before awarding a contract, any project owner can require the chosen contractor to provide a maintenance surety bond, often along with performance and payment bonds. They’re most commonly required for construction projects funded by taxpayer dollars.

A surety bond agreement is a legally binding contract among three parties known as the bond’s “obligee,” “principal,” and “surety.” In the case of a maintenance bond:

  • The project owner requiring and protected by the bond is the obligee,
  • The contractor required to purchase the bond and pay any valid claim is the principal, and
  • The company guaranteeing the bond is the surety.

If it is determined before the end of the coverage period that the project fails to meet state or local building codes or the construction standards specified in the contract and the failure is attributed to the principal, the obligee can file a claim against the maintenance bond. The surety will investigate and ascertain whether the claim is valid and needs to be paid.

Although the legal obligation to pay the claim belongs entirely to the principal, the surety has guaranteed payment and therefore will pay the claim initially and then be reimbursed by the principal. If the principal does not repay the surety as required, the surety can take legal action to recover the claim amount, plus court costs and legal fees.

As the bond’s guarantor, the surety will pay that claim initially, but it’s the principal who is legally obligated to pay it. Essentially, in paying the claim, the surety is extending credit to the principal, thus creating a debt that the principal must repay or face legal action by the surety to recover the claim amount plus any court costs or attorney’s fees.

The premium for a maintenance bond is the product of two factors: the required bond amount, which is set by the obligee, and the premium rate, which is assigned by the surety. The surety is primarily concerned about the risk that the principal won’t repay the debt created by paying the claim on the principal’s behalf. Consequently, the main consideration in assigning a premium rate is the principal’s creditworthiness, as measured by their personal credit score.

A high credit score means that the principal has a history of responsible credit use and on-time payment of debts, suggesting that the risk to the surety is low, which results in a low premium rate, generally in the range of 1% to 3%. Conversely, a low credit score means a higher risk level and warrants a higher premium rate, potentially in the 10% to 15% range.

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Request a quote online or call today to speak with one of our surety bond agents about getting you a good rate on the maintenance bond you need to do business in your state.